Finalto Implements Proactive Risk Strategy for US Election

Ahead of the US Election on 5 November 2024, Finalto Chief Risk Officer Daniel Frostick explains that Finalto is taking proactive steps to limit risk and ensure clients experience uninterrupted service levels.

“We have identified key areas of focus so we can ensure we offer a robust and resilient service to our clients,” Frostick said.

Frostick added that the company expects volatility and increased traffic throughout the election. He said that Finalto’s ‘business as usual’ approach is to prepare for unexpected events and anticipate disruption: “We spend a lot of time and effort to make sure we are always ready for unusual events.”

As part of its proactive risk strategy, Finalto has identified four key focus areas:

Operational Risk

Finalto’s preparedness plan includes a review of critical areas, including reviewing staff numbers, capacity for an increase in trade flow, and a review of all business continuity plans (BCP) and disaster recovery (DR) plans up to date.

As a company with a global presence, the business also thoroughly plans its BCP and DR to manage events across time zones, with additional staff on call in each location if they are required. There will also be additional monitoring in key areas of trading and technology.

Market risk

Finalto runs daily stress and scenario tests and have introduced US Election scenarios using historic and current news sources, market reactions and input from Finalto’s market analysts to analyse a range of outcomes from the event.

Preparedness procedures include identifying where a market gap or swing could occur. Cryptocurrencies are a focus area, as Donald Trump’s pro-crypto approach and the market’s volatility could produce a swing.

Credit Risk

Scenario and stress analysis is a key factor in monitoring client positions. Finalto’s preparedness plan is designed to ensure clients are fully informed and can take action to protect positions against potential volatility or, if they are going to take advantage of additional trade opportunities, that they are aware of the requirements and have funded their accounts in time.

“With automated controls and clear policies and processes, we anticipate business as usual throughout the event,” Frostick said.

Liquidity Risk

As an award-winning Liquidity Provider, Finalto’s priority is to ensure there is always sufficient liquidity to service client needs. Achieving this objective involves checking positions frequently and increasing the cash reserves at the appropriate providers to manage demand.

Antony Parsons, Head of Liquidity at Finalto, added that his team would work to ensure there is enough collateral across all liquidity providers.

“We have strong relationships with our core liquidity providers who already provide deep liquidity pools, which will continue over the US election,” Parsons said.

Anticipating market swings

Neil Wilson, Chief Market Analyst at Finalto, says the election outcome is a coin toss and this may present opportunity for large swings in some markets that are perceived to have a direct correlation to the outcome.

“Declarations or rumours around key swing states like Pennsylvania will be particularly important and algo-driven markets could be especially sensitive to headline risk,” he noted.

“Because the polls remain so close, the election creates a great deal of uncertainty with traders try to price for a binary outcome. Key policies, particularly around trade, tariffs and the outlook for the US debt, will be greatly affected by the outcome and so the results will drive price action.”

“Going on past elections, we might expect pre-election angst reflected in higher risk premia and unclenching afterwards that produces a rally for risk assets – but even this is not assured as we see a range of possible scenarios after the election. The greatest risk would be if the election result is bitterly contested afterwards by the ‘losing’ party – this is probably the main tail risk for markets to consider.”